uDraw Disaster Leads to Lawsuit

THQ has been slapped with a class action lawsuit for misleading shareholders about the prospects of the disastrous uDraw.

Things continue to go from bad to worse (to even worse) for THQ. Less than a week after the announcement of an investigation into allegations that the company misled investors about the likely fate of the uDraw GameTablet, the company has been hit with a class action lawsuit claiming that it "failed to disclose adverse facts" about the product from the period of May 3, 2011, to February 3, 2012.

In simple terms, the lawsuit alleges that THQ knew the uDraw tablet was a huge bust but kept that knowledge on the down-low and continued to promote it as a big part of the company's future. It wasn't until THQ's third-quarter financials came out that the company admitted that sales were "far weaker than anticipated," and that revenues earned from successes like Saints Row: The Third and WWE '12 had been gobbled up by "high inventory reserves, price protection, and concessions at retail" - which is to say, massive price cuts to try to get them off the shelves.

In the wake of that debacle, THQ's already-low share price crashed to around the 50 cent mark, where it languishes today. The company is now trying to get that price up to over $1 in order to avoid a Nasdaq delisting; at the end of June, THQ stockholders will be asked to green-light a "reverse stock split," which will reduce the actual number of shares in the company but, hopefully, increase their individual vale.

Because it "recklessly disregarded" the knowledge that uDraw would be a spectacular failure, according to the lawsuit, THQ "lacked a reasonable basis for their positive statements about the Company and its prospects." The lawsuit, filed by shareholder rights firm Robbins Umeda LLP, seeks damages on behalf of everyone who purchased common stock in THQ during the period under investigation.